Royal Mail

Oral Answers to Questions — Prime Minister – in the House of Commons at 12:33 pm on 10th July 2013.

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Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills 12:33 pm, 10th July 2013

Mr Speaker, today I have laid a report in Parliament announcing that the Government have decided to proceed with a flotation of Royal Mail shares on the London stock exchange via an initial public offering. A sale will initiate the final stage of the Government’s postal sector reforms. The overarching objective of those is to secure the universal postal service—the six-day-a-week service, at uniform and affordable prices, to all 29 million addresses in the UK, which is vital to the UK economy.

Four years ago, the independent review of the postal sector, led by Richard Hooper, concluded that the universal service was under threat. The previous Government accepted the review’s package of three main recommendations and the Bill to implement them, which would have permitted a minority sale of Royal Mail shares, was withdrawn.

In 2010, Richard Hooper’s updated report confirmed his initial findings and that a package of measures was needed to secure the universal service. Through the Postal Services Act 2011, which I introduced three years ago, we have implemented two elements of the package by establishing Ofcom as the postal regulator and taking on Royal Mail’s historic pension deficit.

As set out in today’s report, we will now implement the third and final element of the Hooper recommendations by selling shares through an IPO in this financial year. We will retain flexibility on the size of stake to be sold as that will be influenced by market conditions, investor demand and our objective to ensure overall value for money for the taxpayer. It is our intention to dispose of a majority stake, taking into account shares sold and those allocated to employees.

The IPO will include a retail offer to enable members of the public to buy shares on the same terms as the big institutional investors. At the time of the IPO, the Government will allocate 10% of the shares to an employee share scheme. Those shares will be free to eligible employees, recognising that many would otherwise find them unaffordable, and I want to strengthen employee engagement by ensuring that employees own a real stake in the business. Employees must retain their shares for at least three years, giving longevity to the scheme. Our scheme will be the biggest employee share scheme of any major privatisation for nearly 30 years.

Eligible employees will also receive priority in allocation if they purchase shares in the retail offer. I want to reassure employees that ownership change does not trigger any change in their terms and conditions. The Communication Workers Union will continue to be their recognised representative and employees’ pensions will continue to be governed by the trustees. As part of a three-year agreement, Royal Mail is also prepared to give assurances on the continuation of a predominantly full-time work force; a commitment to provide and enhance existing services to customers using the current work force with no change to the structure of the company in relation to these services; and no additional outsourcing of services.

Royal Mail is profitable and its overall financial position has significantly improved. That is partly due to the Government’s action so far, but considerable credit is also due to the management and the work force who have implemented a modernisation plan. The challenge now is to maintain that positive momentum. In recent history, Royal Mail’s core UK mails business has swung between profit and loss. In the 12 years since 2001, it suffered losses in five of those years and more than 50,000 jobs were lost. Resting on the current level of progress is not enough.

Under public ownership there is simply not the freedom to raise capital in the markets. A share sale will not only provide commercial discipline but give Royal Mail future access to private capital, enabling the company to continue modernising and to take advantage of market opportunities such as the growth in online shopping, building on its success in parcels and logistics. Recent estimates are that that market is probably worth £75 billion in the UK.

There are various myths that we must rebut. Contrary to what is being claimed, after a sale, Royal Mail will still be the UK’s universal service provider. That includes services to urban and rural areas and free services for the blind. Only an affirmative resolution in Parliament can change these minimum requirements. Free services for the armed forces are entirely independent of ownership and Royal Mail is fully reimbursed for those services by the Ministry of Defence.

Ofcom’s primary duty is to secure the provision of the universal service. It also has duties to promote competition where that benefits consumers. I want to be absolutely clear that should the two duties be in conflict, the universal service takes precedence. In March, Ofcom published a statement on its approach to end-to-end competition, making it clear that should a threat to the universal service arise from this competition, it has powers to take any necessary action. Ofcom is currently the most appropriate body to assess and react to such threats to the universal service, but as a safeguard, the Government have retained powers to direct Ofcom with respect to certain regulatory levers, such as reviewing the financial burden of the universal service and taking mitigating action to ensure that the universal service is maintained.

I also confirm that Post Office Ltd will remain a publicly owned institution, although we continue to explore mutualisation. The Government have committed to the fact that there will be no further closure programme. Royal Mail and Post Office Ltd signed a 10-year commercial agreement in 2012 to ensure that they will continue to be strong business partners.

In conclusion, the Government’s decision on the sale is practical and logical. It is a commercial decision designed to put Royal Mail’s future on a long-term, sustainable basis. It is consistent with developments elsewhere in Europe; privatised operators in Austria, Germany and Belgium produce profit margins far higher than Royal Mail’s, and have continued to provide high-quality, expanding services. The time has come for the Government to step back from Royal Mail and allow its management to focus wholeheartedly on growing the business and planning for the future. It is time for employees to hold a stake in the company and share in its success. This Government will give Royal Mail the real commercial freedom that it has needed for a long time, and I commend this statement to the House.

Photo of Chuka Umunna Chuka Umunna Shadow Secretary of State for Business, Innovation and Skills 12:41 pm, 10th July 2013

We opposed the Government’s privatisation of Royal Mail during the passage of the Postal Services Act 2011; we oppose it today. Maintaining Royal Mail in public ownership gives the taxpayer an ongoing direct interest in the maintenance of universal postal services in this country; helps safeguard the vital link that the Royal Mail has with the Post Office; and ensures that the taxpayer gets to share in the upside of modernisation and the increased profits that Royal Mail delivers. Despite that, the Government have pressed on regardless with this sale, and they have failed adequately to justify why they must sell now.

On one side, there is an unusual coalition against this move: the Opposition; the Conservative-supporting Bow Group, which described this move as “poisonous”; the Royal Mail’s employees, represented of course by the CWU; and the National Federation of SubPostmasters. The Minister of State, Department for Business, Innovation and Skills, Michael Fallon, wrote to a constituent in 2009 saying that he, too, was opposed. On the other side, there is the Government, which now includes the Minister of State. The Government are ignoring the huge changes that have taken place since the passage of the Act. Chief among them is the more than doubling of Royal Mail’s profits to £403 million, which calls into question assertions that there is no prospect of the Royal Mail being self-financing in the future.

Having nationalised the organisation’s debts by taking on its pension liabilities, the Government now want to privatise the profit at the very time it is making money. How on earth does that make any sense? Now that the Government have determined to pursue this course, there is every sign that this treasured national institution is being sold off on the cheap to get income quickly to a Treasury whose economic strategy has failed. As long as the Government fail to address key questions about Royal Mail, which I will outline, that will be the conclusion that people will be entitled to reach.

I have the following questions for the Secretary of State. First, Royal Mail faces competition from other postal service operators who are not subject to the same high performance and service quality standards as it is, putting it at a competitive disadvantage. How will this not depress the sale price, and what will he do about it? Secondly, this cannot be allowed to put the Post Office at risk. What guarantees can he give that a privately owned Royal Mail will renew the agreement under which the Post Office provides Royal Mail products, which is essential to the Post Office’s future? What will happen in 2022? Is it not the case that he cannot give any guarantees on what will happen when the agreement expires? On the future of the Post Office, when can we expect to hear more on his plans for mutualisation? On what date will that commence?

Thirdly and finally, is it not the case that there is every prospect that a privatised Royal Mail will seek to sell off valuable locations in high-value urban centres for a fast buck, which will be replaced by distant depots, sorting offices and the rest, which are hard to get to for consumers and small businesses? Yes, there have been successful privatisations in times past which have delivered for the British people, but there have also been examples in rail and energy under the last Conservative Government which were badly executed privatisations that resulted in a long-term bad deal for consumers and small businesses. It is therefore not surprising that the British people oppose this move today.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I think the most interesting and eloquent part of the Opposition’s response was what the hon. Gentleman did not say. He did not say that the next Labour Government, if there is one, will renationalise Royal Mail. He is opposed to privatisation, but he is not proposing to reverse it. That eloquent silence will be heard not just by the investors, but by the trade unions, so we know clearly that we are now on an irreversible course.

The hon. Gentleman talks about pressing on with this sale and his colleagues use the phrase “fire sale”. This is the longest fire sale in history. It has taken five years from the inception of the process under a Labour Government. He talks about self-financing. He knows perfectly well what the rules of public finance are—that a nationalised institution is not able to borrow freely in the markets, as it would wish. It is useful to compare the experience of Royal Mail with what is happening in, for example, Germany. The hon. Gentleman often cites Germany as a role model for good industrial policy, and we have many lessons to learn from it. Germany has a privatised mail system. In the past two years it has invested €750 million and will do so next year, raised on the market, competing ahead of Royal Mail in what are increasingly international markets. I hope he heeds that experience.

The hon. Gentleman worries about a race to the bottom in competition. The main competition for Royal Mail has not come from private competitors; it has come from technology. Within the past 10 years, mail has lost 25% of its business because of e-mail and we have to respond to that. Royal Mail was declining. It was in danger of losing the universal service obligation. We are now giving it the tools to compete and to be a successful enterprise—something that will benefit the country and the workers within it.

Photo of Nick Gibb Nick Gibb Chair, Draft Voting Eligibility (Prisoners) Bill Committee

I warmly welcome my right hon. Friend’s statement about the floatation of Royal Mail. That is long overdue. He gave a commitment to no further closures by Post Office Ltd. Will he therefore look into proposals by Post Office Ltd to close the Crown post office and move it to the back of a shop, against the wishes of thousands of my constituents and against the wishes and interests of businesses located in that part of Littlehampton?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

There are indeed many individual cases which are difficult, often because postmasters or postmistresses wish to retire, but the big picture in respect of the Post Office, which I hope my hon. Friend will recognise, is that we have stopped the mass closure of post offices that took place under the previous Government. We have a network of 11,500 post offices which we are preserving. This Government, despite the financial pressures on them, committed themselves over this spending review to spending £1.3 billion on modernising and upgrading the Post Office and giving it a real future.

Photo of Alan Johnson Alan Johnson Labour, Kingston upon Hull West and Hessle

The Postal Services Act 2011 insisted that the universal postal service must be financially sustainable.

Given the huge loss of rural services in privatised Post Offices across the world, particularly in New Zealand, what magic wand will the right hon. Gentleman give to Ofcom to turn rural services from loss-making to profit-making?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Of course there is no magic wand, but with a combination of modernisation and support, and maintaining community-based post offices, which we are committed to do, many of the warnings that the Opposition have given us will be superfluous.

Photo of Simon Hughes Simon Hughes Deputy Leader, Liberal Democrats

Will the Secretary of State confirm that what he has announced is consistent with the Liberal Democrats’ 2010 manifesto and the coalition agreement, in that only a minority of shares will be put out to the private sector for purchase and the majority interest will be retained by the Government and the employees? That is what I support. I do not support a majority sale.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I made it very clear that the Government plan to become a minority shareholder in the company and that the majority will be a combination of shares sold in the market and shares held by employees. We are not predicting at this stage how far the sale will go, as that will depend on the market.

Photo of Nick Brown Nick Brown Labour, Newcastle upon Tyne East

What sorts of significant investors has the Secretary of State in mind?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

There will be a combination of institutional and private investors. There will be a retail offering that can be obtained by two routes: by applying to the Government directly over the internet, and through brokers. Ownership will be widely dispersed.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission

Some 20 years ago, as Post Office Minister, I tried to privatise Royal Mail. We could not get it through because of Labour intransigence. Labour Members were wrong then and they are wrong now. Has not the only result of the delay been a lack of investment and an inability on the part of this publicly owned corporation to respond to international and technological challenges?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I know that it is tempting to blame the Labour party for a lot of things, but I seem to remember that the attempted privatisation under the hon. Gentleman’s stewardship ground to a halt because Mrs Thatcher was against it. We have moved on and circumstances are different. Indeed, this is a substantial commitment to making a real success of what the Prime Minister called a very important public service.

Photo of Peter Hain Peter Hain Labour, Neath

Why does the Secretary of State not consider the kind of business model used by Welsh Water, which the Library has advised me is perfectly compatible with the Act, which successfully combines social obligations and commercial imperatives and raises capital more cheaply without contributing to Government debt? A survey by the Tory Bow Group shows that 67% of the public oppose privatisation, as do 96% of the work force. Why does he not stop dogmatically pursuing a flotation and instead adopt that positive, popular and viable alternative?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

There is a long and complex debate about how water companies are operated. Of course, they have extremely high gearing because of the nature of their business and do not require anything like the same level of equity. We have a model that combines the best use of equity markets and the level of debt that the company will need to finance its future investment.

Photo of Tony Baldry Tony Baldry The Second Church Estates Commissioner

Does my right hon. Friend agree that, although Royal Mail’s financial position has improved, it still lags considerably far behind international competitors such as Deutsche Post, Belgian Post and Austrian Post? Is not the simple fact that Royal Mail, as part of the public sector, has its hands tied in a way that its international competitors do not?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Yes, it is tied because of the limitations on borrowing possibilities and what many people perceive to be the potential for political intervention. The companies that the hon. Gentleman mentioned—in Austria, Belgium and Germany—all of which are privatised, are indeed highly profitable, and they also invest heavily. They are making deep inroads into the international logistics market and it is time Royal Mail was competing successfully with them.

Photo of Caroline Lucas Caroline Lucas Green, Brighton, Pavilion

As the Secretary of State has said, Royal Mail’s performance has gone from strength to strength, so why will the Government not commit to building on what has been achieved and keep it in public ownership, where we can guarantee that future profits will be invested in what is good for Britain, rather than what is good for a few select shareholders?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

We are building on the success of the modernisation of the last few years, and I pay tribute to the management and the work force who have made that possible. The one factor that the hon. Lady’s model does not deal with is how a company of that kind raises substantial amounts of capital when it would be in direct competition with schools, hospitals and other bodies that require public sector investment. That is the big inhibition at the moment.

Photo of Julian Smith Julian Smith Conservative, Skipton and Ripon

Settle post office, deep in the Yorkshire dales, has benefited hugely from the Government’s Post Office reforms. Will the Secretary of State confirm that one of the most rural areas of Britain will benefit even more from the changes he has announced today?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Post Office Ltd is a separate organisation under a publicly owned umbrella, and within that there are large numbers of highly competitive, self-employed entrepreneurs who run the post office network. We are supporting it substantially, modernising it and preventing large-scale closures. There is indeed an excellent future for the hon. Gentleman’s local post office.

D

Ha ha! Our local Post Office closed four years ago. We now have to use the Settle office, if we can get a bus - that's going, too.

Submitted by Diane

Photo of Pat McFadden Pat McFadden Labour, Wolverhampton South East

The Secretary of State said that this process began five years ago with the Hooper review, and he is right, but will he also confirm that the critical difference between the Bill he passed and the one proposed by the previous Government was that our Bill contained a clause stating that Royal Mail must remain publicly owned?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Indeed. We are moving to a higher level of private involvement than was envisaged under the 2008 proposals, and the reason, which I have given very clearly, is that that minority state ownership would not have enabled the company to borrow as freely as it should.

Photo of Charles Hendry Charles Hendry Conservative, Wealden

I warmly welcome the proposals. Will the Secretary of State say a little more about the Government’s role in setting performance standards and ensuring they are met, specifically in relation to the proportion of letters and packages that should be delivered in a certain time scale and what is an appropriate price for consumers to pay for that service?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The Government will not be involved in day-to-day oversight of Royal Mail; it will be governed by the regulator, which will set the appropriate standard.

Photo of Jack Dromey Jack Dromey Shadow Minister (Housing)

Royal Mail workers and their management have co-operated in a process of radical change to transform Royal Mail into an efficient, effective and profitable world-class company. The public do not want privatisation, and posties do not want privatisation. Will the Secretary of State join me in paying tribute to Royal Mail workers, who by a 96% vote in a ballot said, “Keep your bribe. We want to remain public posties”?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

There was a substantial vote on that consultative ballot, but I hope that the hon. Gentleman is not suggesting that it takes precedence over the vote of the House of Commons, which after all brought the process into being. I have already freely acknowledged that the CWU, despite the rhetoric we sometimes hear from it, has played a very constructive role in the modernisation, and we want to help it, as a result of this share offer, to become further aligned in the long term with the interests of the company. If the company makes money and succeeds, the CWU will derive additional benefit.

Photo of Andrew Bridgen Andrew Bridgen Conservative, North West Leicestershire

Will my right hon. Friend confirm that the six-day-a-week service will continue after privatisation and across the whole country?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Absolutely. That is the fundamental of the universal service obligation, which can be changed only by an affirmative vote of this House.

Photo of Adrian Bailey Adrian Bailey Chair, Business, Innovation and Skills Committee

The Minister acknowledged the importance of the contractual relationship between Royal Mail and the sustainability of the post office network, and in a previous answer he acknowledged the issue of elderly sub-postmasters retiring. What assessment has he made of the viability of the post office network, given the uncertainty that the privatisation of Royal Mail will create in the minds of people who might take on post offices when sub-postmasters retire?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

As I explained, there is currently a 10-year agreement in place, which takes us into the Parliament after next. Few other businesses operate with that degree of regulatory certainty.

Photo of Ben Gummer Ben Gummer Conservative, Ipswich

This is a very good day, because privatisations are good, which is why they have not been reversed in the past. It is also a good day because this privatisation includes shares for workers. Will the Secretary of State elaborate on the 10% shareholding that the Government will be giving free of charge to Royal Mail employees?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I do not think that a great deal of elaboration is necessary. As I said, the shareholding will be free of charge. In addition, workers will have priority, should they wish to buy an additional shareholding. The principle under which the share scheme will operate is that it will be locked in for three years to give the arrangement longevity. I imagine that most postal workers will want to hold the shares for at least five years to take full advantage of the tax incentives available, for example the absence of capital gains tax, under the current scheme.

Photo of Kate Hoey Kate Hoey Labour, Vauxhall

The Secretary of State might be sincere in what he says, but does he not realise that the vast majority of the public, particularly in the countryside and in rural areas, just do not believe that the universal service is guaranteed, because they know what has happened in other privatised industries? How can he ensure that it really will be guaranteed? I do not believe it, most Opposition Members probably do not believe it, and Conservative Members who fought against it last time, when Margaret Thatcher was against it, do not believe it. This is a very wrong decision.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The best way of reassuring the public is to demolish some of the myths. The fact is that the universal service obligation was clearly underwritten by Parliament; it is embedded in legislation and cannot be removed. I hope the hon. Lady will pass that message on to her constituents.

Photo of Richard Fuller Richard Fuller Conservative, Bedford

May I commend the Secretary of State for this most welcome announcement? The people in my constituency who will be most concerned about it will be the postal workers. Will he spend a moment reassuring them about their future in a privatised Royal Mail? In particular, what does he anticipate the additional capital that a private Royal Mail will be able to take on will do for them and their jobs?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

As I explained, Royal Mail has offered a three-year deal to the workers which they are still considering. It is relatively generous in respect of pay—considerably in excess of the public sector norm. They are being given assurances on the nature of work and the absence of any further outsourcing. They will benefit under these proposals from the appreciation of the shares they receive free of charge. I would have thought that if I were a Royal Mail worker thinking of my individual situation, I would think this a very good deal.

Photo of Gerald Kaufman Gerald Kaufman Labour, Manchester, Gorton

Is not this statement a total and cynical violation of the election manifesto on which the Secretary of State fought the last election—which, with some distaste, I hold in my hand? Is not this typical of a Liberal Democrat who made promises on the basis that he would never expect to have to carry them out? He said that there will be no further closure programme. How does he reconcile that with the plan to close Wellington street post office in Gorton in my constituency, which has aroused fury in local residents?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I find it extraordinary that Labour Members are raising the issue of post office closures. I think that three major waves of closures took place under the previous Government. We have stopped that and we are investing very heavily in new infrastructure to enable post offices to compete.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

Public sector Royal Mail wants to close a delivery office at South Bank in my constituency and has recently stopped sorting mail in the Tees valley altogether for the 750,000 people who live there. Does my right hon. Friend agree that private sector Royal Mail will be more likely to review such decisions for overall value for money and customer service?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Yes, I am sure that it should do that, but I do not wish to comment on the details of the industrial dispute that has led to that difficulty.

Photo of Lilian Greenwood Lilian Greenwood Shadow Minister (Transport)

Does the Secretary of State share my concern that a private buyer is more likely to sell off delivery offices in town centres, moving them to out-of-town and less accessible locations for those picking up parcels? What guarantees can he give to consumers and small businesses who rely on our Royal Mail sorting offices?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I thought that in the first part of her question the hon. Lady was perhaps mixing up the Post Office and Royal Mail. Of course, the post office network remains publicly owned, with all the implications involved. The private Royal Mail will be able to use its assets to the best possible advantage. Of course there will be change, much of it driven by technology.

Photo of Stephen Metcalfe Stephen Metcalfe Conservative, South Basildon and East Thurrock

Why does my right hon. Friend think that Labour Members and their CWU friends have been exaggerating the myths about the risks faced by Royal Mail, other than for their own political gain?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The hon. Gentleman makes my point for me. I am trying to work constructively with the CWU, as is my colleague, the Minister of State, Michael Fallon. We realise that it is in its interests that this succeeds, and we are trying to persuade it to work with us constructively.

Photo of David Simpson David Simpson Shadow DUP Spokesperson (Communities and Local Government), Shadow DUP Spokesperson (Business, Innovation and Skills)

The Business Secretary said that as part of a three-year agreement Royal Mail is prepared to give a number of assurances. Ultimately, what control will the Government have in seeing that those assurances are implemented?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Let me clear: these were not Government commitments but assurances by the management of Royal Mail, who will, I hope, reach a satisfactory agreement with their work force. It is currently under dispute, but there will be a traditional type of industrial agreement and I am sure that it will be honoured.

Photo of Robert Halfon Robert Halfon Conservative, Harlow

I welcome modernisation of the Post Office, but does my right hon. Friend agree that the Post Office and Royal Mail are not just places of economic capital but important parts of our social fabric? Please can he reassure hard-working Harlow postmen and postwomen that privatisation will not lead to a repeat of what happened with some of the utility companies, particularly water companies, where they have avoided tax, directors have awarded themselves huge bonuses, and prices have gone up by ridiculous amounts?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Of course we need to get tough with systematic tax avoidance. My colleagues in the Treasury have been setting out how we want to do that, because it was allowed to happen for far too long. The essential point is that this is not just a typical business; it is a major national institution with social obligations. That is why I began by saying that the overarching objective is to secure the universal service obligation.

Photo of Lisa Nandy Lisa Nandy Shadow Minister (Education)

The Secretary of State only has to look at the rail and energy companies to see examples of how badly executed privatisation has led to sub-standard service and high prices that put those services out of the reach of many of my constituents. Is he seriously telling this House that he is going to ignore the overwhelming concern of the majority of the British public and fail to protect such a vital institution?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

We had 12 years of a Labour Government who had an opportunity to reverse many of the privatisations that occurred, and they did not. I presume that was a recognition that the balance of advantage was positive.

Photo of George Freeman George Freeman Conservative, Mid Norfolk

I welcome the Department’s bravery in setting out this initiative so that Royal Mail can gain access to the investment and innovation that are available to other competing services. I particularly welcome the statutory protection for the six-day universal service for rural areas and the provisions for employee ownership. Does the Secretary of State agree that those in this House who want to support public services do them no favours by locking them in aspic and denying them that which makes the private sector able to flourish and succeed?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Yes, I am sure that is absolutely right. I hope that those words will also be taken to heart by the CWU.

Photo of Dennis Skinner Dennis Skinner Labour, Bolsover

Is the Secretary of State aware that about 30 years ago Mrs Thatcher privatised countless public utilities? It was called the share-owning democracy: the British people would hold the shares, they would last for ever, it would be nirvana. The net result was that all those public utilities—oil, gas, water, electricity—are now owned abroad. What guarantees can he give, as a little Liberal, on just how we manage to keep this so-called share-owning democracy in this country? Why doesn’t he do the decent thing—meet Billy Hayes and the CWU, scrap this, act like a man, and get back to where he used to be?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I have perfectly amicable conversations with Mr Hayes and his colleagues, and they will undoubtedly continue. I was not sure whether the hon. Gentleman’s tirade was directed at privatisation or foreign ownership; they are rather different issues. I think that foreign owners have made a major contribution to this country. Some of our leading manufacturing companies are run by foreign owners who have invested in the long term and have made a real commitment to this country. I am certainly not going to impose nationalistic restrictions on ownership.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

Ever since the penny black, we have had the monarch’s image on our stamps. Will my right hon. Friend assure the House that the Queen’s image—the Queen’s head—will remain on our stamps?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Indeed. That was raised when the Postal Services Act 2011 went through the House two and half years ago. The commitments were made then, and they are embedded in legislation.

Photo of Ann McKechin Ann McKechin Labour, Glasgow North

Will the Secretary of State confirm what proportion of the sale proceeds will be reinvested in the business rather than taken as profit?

[Official Report, 15 July 2013, Vol. 566, c. 3-4MC.]

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

We are not making any advance predictions as to what the sale proceeds will be or how they will be utilised. We are giving Royal Mail the commercial freedom to make those decisions itself.

Photo of David Mowat David Mowat Conservative, Warrington South

Will the Secretary of State confirm that having access to private capital and no longer competing with schools and hospitals for capital will protect jobs in the medium term as well as protecting the universal service obligation?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Yes, it will. There is a theological argument, as it were, about the circumstances under which public agencies should borrow, but at the moment the rules are such that Royal Mail would be directly competing with capital investment in schools and hospitals. That is not healthy, and it is much more sensible that the company is put in a position where it can utilise capital from the markets.

Photo of Michael Weir Michael Weir Shadow SNP Spokesperson (Business), Shadow SNP Spokesperson (Energy and Climate Change)

My hon. Friends and I steadfastly oppose the privatisation; that will come as no surprise to the Secretary of State. He says that the USO is safe, but Ofcom has already abandoned price controls apart from on second-class letters and confirmed that there is nothing to stop zonal pricing being introduced. Under what definition does that make it safe?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

It is a universal service obligation—that is what it says and that is what it means. It is embedded in law and there is no prospect of the scare the hon. Gentleman has just tried to generate for Scotland being manifested in reality.

Photo of Alun Cairns Alun Cairns Conservative, Vale of Glamorgan

Plans to privatise Royal Mail started well before the general election and I congratulate all those who have brought it up to standard and ready for this market opportunity. Postmen stand to gain significantly in financial terms and management will be able to raise capital for investment. Will the Secretary of State reassure me that customers will also be protected, that the robust regulatory arrangement will remain with Ofcom and that it will stand up on their behalf?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The hon. Gentleman will know that consumer standards are indeed embedded in the system of regulation. In particular, there is an agreed cap on the price of a second class stamp, and that remains.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

As a result of the Government’s legislation, TNT now provides postal services in parts of London. It employs staff on zero-hour contracts at £7.10 per hour. Apparently it employs too many staff, so every day postal workers are sent home. Is this the face of the terms and conditions of postal workers in the future?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

As the hon. Lady may have heard, I am having a look at the evidence on zero-hour contracts. Many employees as well as employers think it is a perfectly sensible system, but there have been complaints. We are looking at the issue and trying to make a balanced judgment.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

In my constituency, Dover and Deal is one of the fastest growing areas for internet businesses. Is it not the case that the protections for deliveries and collections are not just a matter of good politics but important to our economy? Many of the small, internet businesses in my area depend on that security.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

They do, indeed. Trade through the internet is one of the things that Britain does exceptionally well. We are probably the leading country in the world in internet-based commerce. By strengthening Royal Mail, we will be able to create a platform to enable that to increase even further.

Photo of Gordon Banks Gordon Banks Shadow Minister (Scotland)

As a shadow business Minister I opposed this proposal in the Postal Services Bill Committee and in the House. I also oppose what the Secretary of State has said today. May I press him further on the link between Royal Mail and the Post Office? Is he able to guarantee that, post-2022, the vital link between the Post Office and Royal Mail will survive? A simple yes or no will suffice.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The hon. Gentleman says he opposes what we are doing, but why does he not say that he wants to reverse it? That is the question. There is a 10-year agreement, which offers a remarkable degree of security for the Post Office. Frankly, my mind boggles at the fact that the Opposition regard 10 years as inadequate.

Photo of Damian Collins Damian Collins Conservative, Folkestone and Hythe

I welcome the statement and think it offers the best future for Royal Mail. Does the Secretary of State agree with the remarks made by the chief executive of Royal Mail before the Postal Services Bill Committee? She said that, without privatisation,

“you will see a continuation of what have been chronic problems for Royal Mail.”––[Official Report, Postal Services Public Bill Committee, 9 November 2010; c. 4, Q3.]

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

There will be—and those chronic problems are most manifest in the fact that in five of the past 10 years Royal Mail has made losses. It is not a viable enterprise and is unable to sustain the universal service obligation. This gives it the real opportunity to do that.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

Does the Secretary of State not understand that postmasters, postmistresses and their customers all have grave concerns? They know that their branches are already in trouble and remember the botched privatisations of rail and the utilities during the 1980s and ’90s. They also recognise that the danger is that we will see the same problem—increased prices and reduced services.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Post offices have had a remarkably good deal—I am repeating what I have said many times. We have put a line under the large-scale closures repeatedly experienced under the previous Government. Despite the pressures on public finance, we are investing £1.3 billion. Post offices have a 10-year agreement to provide stability in their link with Royal Mail. This very difficult business is being sustained in an exceptionally attractive environment.

Photo of Julian Sturdy Julian Sturdy Conservative, York Outer

I warmly welcome the statement: modernisation of Royal Mail is long overdue. A six-day delivery service is a lifeline for isolated rural communities. May I stress to my right hon. Friend how important it is to maintain that and ask him to do all he can to make sure it happens?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

That does not require any effort from me: the hon. Gentleman is a Member of this House who voted through legislation that embeds that commitment in law.

Photo of Michael Connarty Michael Connarty Labour, Linlithgow and East Falkirk

I noted that in his list of comparators the Secretary of State did not mention the Netherlands, where TNT is running the service in the same way it is now being run in London. He did not mention Network Rail, which is allowed to borrow on the private market. What he did mention was that a future Minister would be able to direct Ofcom in any way possible. Given that the Institute of Economic Affairs called this morning for a ban on the universal service obligation, for zonal pricing and for not making deliveries six days a week in the countryside, is it not true that, if this privatisation goes through, the only way to guarantee that the conditions in the Bill remain active will be to vote Labour at the next election?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I am struck by the fact that, instead of dealing with the proposal on its merits, Opposition Members are inventing fantasies about zonal pricing and the abandonment of the terms of the contract that Royal Mail is offering. There is no realistic prospect of those things happening. Enormous security is provided by an Act of Parliament. That should be enough for most people.

Photo of Robin Walker Robin Walker Conservative, Worcester

As we all know, Labour tried but failed to bring private capital into Royal Mail, and its botched attempt to do that was opposed by Members on both sides of the House. Is not the difference between this and Labour’s set of proposals that this set protects the universal service, investment in the Post Office and postal workers’ pensions and gives postal workers a real stake in the future of this great British business?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The previous Government’s capitulation on their Bill was one of their less glorious episodes. We have maintained the best principles of that effort and have carried it one step further. We are now implementing it, and it has all the positive features described by my hon. Friend.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

The emphasis that the Secretary of State has placed on what a future Labour Government would do in terms of privatisation suggests that the timing of this privatisation has as much to do with getting it through before the next general election as with getting the best price.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I think the hon. Lady has a poor memory, although she might remember that this was the first major Bill that this Government introduced—a fact that I recall because I introduced it.

Photo of Andrew Jones Andrew Jones Conservative, Harrogate and Knaresborough

I worked for a newly privatised company in the 1980s and the commercial transformation was fantastic, so I welcome this statement. Will my right hon. Friend confirm that Royal Mail will enjoy the broader commercial freedoms that allow other companies to compete? For Royal Mail, that means access to capital and the freedom to seek broader commercial opportunities, such as its European business, to make the business stronger for the future.

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I believe that my hon. Friend’s experience was with the National Freight Corporation, which was one of the many successful privatisations that nobody would dream of reversing. He makes the specific point that there are major opportunities for Royal Mail in international trade through logistics. That market is now opening up. One of our central objectives in the single market negotiations is to lift the barriers to e-commerce, and Royal Mail has the potential to benefit substantially from that, provided it invests substantially. This action will enable it to do that.

Photo of David Hanson David Hanson Shadow Minister (Home Affairs)

Is the Secretary of State able to give a guarantee that, if this proposal proceeds, my constituents in rural north Wales will pay exactly the same for a stamp as constituents in Westminster?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Yes, of course, and the right hon. Gentleman should know that because he voted through the legislation to provide that guarantee.

Photo of John Glen John Glen Conservative, Salisbury

Although I warmly welcome today’s announcement, may I press the Secretary of State to confirm that in rural areas such as those around Salisbury there will never be a prospect of a second-tier service opening up, even after the first three years beyond this measure taking effect?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

I have repeated many times that the universal service obligation is embedded in law and being policed by Ofcom. That is the situation and it will continue.

Photo of Susan Elan Jones Susan Elan Jones Opposition Whip (Commons)

The Government’s remarkable achievement in uniting the National Federation of SubPostmasters, CWU members and the Countryside Alliance is a sign of how appalling this decision is. Does the Secretary of State agree that it is high time that he considered the matter properly and reflected on its impact on rural areas?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

We have devoted four to five years of parliamentary time to reflecting on this process, and we are now doing something about it. The hon. Lady includes bodies such as the National Federation of SubPostmasters in her roll call of institutions, but this announcement has nothing to do with the Post Office, which remains under public ownership and is supported in the ways I have described.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

Will the Secretary of State confirm to Royal Mail employees in Kettering that under these proposals they face a 9% pay deal, that the change in ownership will not trigger any change in their terms and conditions, that they will be entitled to their fair share of up to 10% free shares in the new business, and that they will be part of the biggest employee share scheme of any major privatisation?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The hon. Gentleman summarises the benefits admirably, and I would be amazed if, when they sit down and reflect calmly, members of the Communications Workers Union do not see it the same way.

Photo of Clive Efford Clive Efford Shadow Minister (Culture, Media and Sport)

In his statement the Secretary of State said, “The Government have retained powers to direct Ofcom with respect to certain regulatory levers, such as reviewing the financial burden of the universal service”. What can that mean other than differential charges for a universal service in less-populated areas and in rural areas, fragmentation of the service, and casual labour used to deliver the post in areas that they have no knowledge about?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The hon. Gentleman is venturing into a fantasy world. The service obligation is universal and I was providing reassurance that the Government have back-stop powers to protect that obligation, not to undermine it.

Photo of Andrew Stephenson Andrew Stephenson Conservative, Pendle

I warmly welcome today’s announcement. It was a pleasure to serve on the Postal Services Bill Committee and watch the previous Government’s half-baked privatisation plans become the excellent proposals before us today. Does the Secretary of State agree that the proposals represent an excellent deal for postmen and postwomen across the UK, allowing Royal Mail to modernise and win a higher proportion of the rapidly expanding packages market?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Yes, that is absolutely right. Royal Mail is making money from packaging although it is losing money from traditional mail delivery. It is therefore important that it has the investment to take that packaging business forward.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Health)

I was frankly astounded and appalled at the Secretary of State’s attitude towards zero-hours contracts in the postal services. Will he confirm that there is nothing contradictory about maintaining universal service delivery across the United Kingdom, and the introduction of regional and zonal pricing for those services? Will he stand at the Dispatch Box and say that there will be no moves towards regional or zonal pricing in the future?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

There will be no moves in that direction. I am slightly astounded by the hon. Gentleman’s comments on zero-hours contracts. Such contracts operated for many years under the Labour Government, who chose to do nothing about them whatsoever. I am the first Secretary of State who has investigated exactly what is going on in that market.

Photo of Rob Wilson Rob Wilson Conservative, Reading East

I welcome the Secretary of State’s statement; this is probably the most sustainable way of ensuring the future of Royal Mail. Will he explain why he has settled on a figure of 10% for company shareholding for posties, and say whether there is scope to consider a slightly bigger stake for posties in Reading and the country so that workers have a bigger say in what happens in Royal Mail?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

The legislation provided for at least 10% and we are proposing a 10% free share offer. Postal workers will have priority if there is excessive demand, and stakes could be built up considerably beyond 10%.

Photo of Margaret Ritchie Margaret Ritchie Shadow SDLP Spokesperson (Environment, Food and Rural Affairs), Shadow SDLP Spokesperson (Energy and Climate Change)

What long-term decisions will the Secretary of State take, based on only three-year assurances about jobs and services?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

They were not my assurances; they were given by the employer, which is Royal Mail. A three-year agreement is perhaps rather long for much of industry, and the work force will have to negotiate again with its future employers.

Photo of Stephen Doughty Stephen Doughty Labour, Cardiff South and Penarth

I recently visited the Cardiff mail centre in my constituency and the Penarth delivery office. Given the provenance of the chief executive of Royal Mail, will the Secretary of State assure me that he will not be taking lessons on universal delivery from Canada Post. In many rural areas and small towns in Canada there is no universal delivery service and residents have to pick up their mail from smaller delivery and sorting offices?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

If there are particular defects or a genuine breakdown in universal services in an area we can consider that, but that is not my understanding of how the service operates.

Photo of Jonathan Edwards Jonathan Edwards Shadow PC Spokesperson (Treasury), Shadow PC Spokesperson (Business, Innovation and Skills), Shadow PC Spokesperson (Transport), Shadow PC Spokesperson (Communities and Local Government), Shadow PC Spokesperson (Culture, Media and Sport), Shadow PC Spokesperson (Wales)

The Secretary of State mentioned increased profitability in states where postal services have been privatised, but was that achieved on the back of increased prices and reduced delivery days, as in Holland? What does he think the effect will be on small businesses located in rural areas if costs spiral and delivery days are reduced?

Photo of Vincent Cable Vincent Cable The Secretary of State for Business, Innovation and Skills

Costs will not spiral and, as I said in an earlier answer, the regulator has imposed a cap on the cost of a second class stamp. Other elements that small businesses in rural areas need, such as a guarantee of the universal service obligation, lie at the heart of what I have been saying this afternoon.

Photo of John Bercow John Bercow Chair, Speaker's Committee for the Independent Parliamentary Standards Authority, Chair, Speaker's Committee on the Electoral Commission, Speaker of the House of Commons, Speaker of the House of Commons

We are grateful to the Secretary of State and to colleagues. Fifty-two Back Benchers questioned him in 38 minutes of Back-Bench time. If other Ministers were as brief in responding, we would get everybody in every time.